HKMA says mainland-related lending underpinned by genuine demand

HONG KONG (Reuters) - The Hong Kong Monetary Authority (HKMA) said on Tuesday that mainland-related lending in the city's banking sector is supported by genuine economic activities, countering fears about exposure to rising levels of bad debt in China.

The comments came after Hong Kong banks ramped up lending to China in recent years, fueling concerns about their credit exposure to the mainland at a time when sliding economic growth and defaults are making investors nervous.

Some market observers consider that even a modest increase in non-performing loans would have a significant impact on Hong Kong bank profits, suggesting the sector will be a sensitive indicator of China's debt markets in the year ahead.

At the end of last year, the Hong Kong banking sector's total mainland-related customer loans hit HK$2.276 trillion ($293.53 billion), 30 percent more than the HK$1.750 trillion of 2012.

Trade finance loans reached HK$313 billion by the end of 2013, according to the data from the city's de-facto central bank.